Transmission and distribution (T&D) together with integrated assets accounted for US$100.3b (50.1%) of total deal value in 2017, as buyers continued to favor long-term stable returns amid low interest rates and excess capital. However, a 10% overall increase in deal volume was largely driven by a 28% rise in renewables deals, to the value of US$42.8b. Investment in renewables increased 1.5x in 2017, with most value attributed to European deals (US$15.1b).

Last year also saw a resurgence in mergers and acquisitions (M&A) involving independent power producers (IPP), particularly in Europe and the US, where IPP deals more than doubled in value – from US$15.2b to US$33b year-on-year. In addition, over the last two years, new energy-focused start-ups raised US$746m of funding (series A and B), of which US$253m was focused on energy services.

Matt Rennie, EY Global Power & Utilities Transactions Leader, says:

“2017 was a formative year in power and utilities transactional activity. Investments in the conventional energy sector were dominated by the changing generation mix, as renewable energy continued to account for an increasing proportion of the system, and low interest rates again drove yield capital toward regulated networks. We also saw the new energy market continue to grow in both scale and importance. As technology companies increasingly become a mainstream contingent within the electricity system, we expect them to focus on arbitraging network peaks and to focus on the long-term needs of a decentralized future energy market.”

Renewables top the growth agenda in the Americas.

In the Americas, deal value reached US$102.2b – surpassing US$100b for the first time in eight years – with the US recording the highest level of investment globally (US$87.9b). Networks represented US$29.4b of total Americas deal value, while US$28.4b was attributable to integrated assets, US$24b to generation and US$14.2b to renewables. Renewable energy M&A in the Americas grew 28% in volume and 71% in value year-on-year.

Rennie says: “In the Americas, 2017 was marked by three investment themes: network assets continued to be highly attractive to investors seeking yield in a low interest rate environment; renewable energy investment activity remained strong, driven in part by ongoing support at state level; and investments in energy technology start-ups continued to gain prominence – particularly on the west coast of the US.”

T&D and renewables boost sluggish deal activity in Europe

European deal value was similar to 2016 levels, at US$50.3b, recording an 11% increase in volume to 213 deals. Renewables contributed 30% of total deal value, with networks accounting for 27%, and generation 26%.

Rennie says: “Low pool prices, flat electricity demand and ongoing impairments meant 2017 was another challenging year for M&A in Europe. However, some of Europe’s largest integrated utilities moved to transform their investment strategy and business models. We anticipate moderate economic growth in 2018, particularly as investment in renewable assets continues and new energy becomes increasingly mainstream within the electricity system.”

Asia-Pacific policies drive the trend toward renewables

Asia-Pacific was the only region to record moderate growth in 2017. Total deal value reached US$46.7b, a 14% increase on 2016, reflecting growth across all segments except conventional generation. Renewables deal value grew 72% year-on-year to US$13.5b, amid favorable policies across the region.

Rennie says: “We expect to see a greater focus on reliability in coming years as the generation mix shifts toward renewables in Asia-Pacific. This could see higher levels of investment in peak and frequency support, spanning more flexible convention generation and greater involvement from storage technologies. Network valuations will climax as interest rates increase and new counterparties emerge. And as new entrants and incumbents are drawn to the benefits of scale and digital platforms, we expect to see consolidation in retail in the region.”

- Ends -

Notes to Editors

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About EY’s Global Power & Utilities Sector

In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. EY’s Global Power & Utilities Sector brings together a worldwide team of professionals to help you succeed — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Sector team works to anticipate market trends, identify their implications and develop points of view on relevant sector issues. Ultimately, this team enables us to help you meet your goals and compete more effectively.

The EY analysis and perspectives within Power transactions and trends are based on global financial releases and Mergermarket data, as well as global engagements conducted by EY member firms over the period 2012 to 2018. They provide an up-to-date assessment of outcomes and trends in the global utilities industry.

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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.